Since September 2008, the global economy has witnessed its most tumultuous times since theGreat Depression. The impressive coordinated policy response of the G-20 nations has helped theworld avoid the worst scenario. However, the global economy, especially the advanced countries,has not fully recovered.Structural reforms are required for advanced countries to regain their competitiveness and nor-mal growth.Withoutstructuralreforms,thedebt-riddencountriesinSouthernEuropearelikelytorequire repeated and increasingly large rescue packages. And without structural reforms in Japanand the United States, they will also suffer from sluggish growth, persistently high unemploymentand rapid accumulation of public debts. These advanced countries will continue their loose mon-etary policies to keep interest rates low to support the financial system, help indebted households,and reduce the costs for refinancing public debts. The likely outcome is that the Eurozone, Japan,and the United States will all be trapped in a “new normal” of slow growth, high risks, and lowreturns to financial investment (Clarida, 2010) or even Japanese-style “lost decades”. Low interestrates will also encourage short-term speculative capital outflows to international commodity mar-kets (resulting in volatile prices) and to emerging economies (resulting in asset bubbles, currencyappreciation, and difficulties in macroeconomic management).
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